On November 1st, at local time, the United States Federal Reserve announced its latest interest rate decision, keeping the target range for the federal funds rate unchanged at 5.25% to 5.5%. This decision met market expectations and marks the second consecutive pause in interest rate hikes since September of this year.

The Federal Reserve's statement that day indicated robust expansion in U.Seconomic activity during the third quarterWhile the growth in employment has decelerated since earlier this year, it remains strong, and inflation is still elevatedThe American banking system is resilient, though the tightening of financial conditions for households and businesses might potentially impact economic activity, employment, and inflation

However, the extent of such impacts remains uncertain.

At the post-meeting press conference, Fed Chair Jerome Powell stated that future decisions would depend on incoming data and its implications for economic activity, inflation, and risk assessmentsHe underlined that a rate cut is not currently under consideration by the Federal Reserve.

Following the announcement, the three major indices in the U.Sstock market saw collective gains, with the Nasdaq rising by 210.23 points, or 1.64%, reaching 13,061.47 points; the S&P 500 increasing by 44.06 points, or 1.05%, closing at 4,237.86 points; and the Dow Jones up by 221.71 points, or 0.67%, ending at 33,274.58 points.

Proceed with Caution

The Fed’s statement maintained its previous stance, emphasizing that the Federal Open Market Committee (FOMC) will continue to evaluate new information and its effects on monetary policy

• Secrets of Elite Traders' Success
• A Review of Global Capital Markets in 2024
• Drivers of Global Financial Turmoil
• Economic Conditions Drive Exchange Rates
• US Inflation Rebound Fuels Rate Hike Fears

There remains a heightened focus on inflation risks, with a firm commitment to bringing the inflation rate back down to the 2% targetIf threats that could hinder reaching this target are identified, the Fed is prepared to adjust its policy stance accordingly.

Recent data from the Labor Department revealed that the Consumer Price Index (CPI) in September rose 3.7% year-on-year and 0.4% month-on-month, both exceeding forecasts.

The assessment of the economy in the Fed's latest statement was notably more optimistic compared to the one from the September meetingThe previous statement remarked that "recent indicators showed economic activity has been expanding at a steady pace," whereas the current release stated "recent indicators showed strong expansion of economic activity in the third quarter."

Further, the U.S

GDP's annualized growth rate in the third quarter was reported at 4.9%, a significant jump from the second quarter's 2.1%, marking the highest level since the fourth quarter of 2021.

DrChoi Xiao, a senior economist at Pictet Wealth Management in the U.S., remarked that while the third quarter of 2023 saw substantial economic performance, the factors driving this growth are beginning to shift towards a more negative outlookIt is anticipated that growth will decelerate in the fourth quarter, falling below potential growth rates.

For instance, expenditures on durable goods and discretionary services contributed significantly to economic growth in the third quarterHowever, factors such as the resumption of student loan repayments, rising gasoline prices, tightening borrowing costs, and a decrease in pent-up demand are all expected to contribute to a slowdown

In fact, the real disposable personal income was reported at negative figures by the end of the third quarter, indicating potential warning signsMoreover, commercial investment appeared to lack momentum, as business surveys indicated weak growth prospects.

During the conference, Powell asserted that the Fed’s policy is restrictive and that its effects are starting to become evident, although it has not fully manifested yetHe noted that the Federal Reserve has made significant progress in this round of interest rate hikes and that officials believe they are nearing the end of the current tightening cycle, proceeding with caution as they do so.

No Rate Cuts on the Horizon

A reporter posed a question during the press conference about whether the absence of a rate hike in December would signify the end of the rate-hiking cycle

Powell's response was noncommittal, implying that this was not necessarily the case.

Moreover, Powell clarified that it is a misconception that once a halt in rate hikes is decided, it becomes difficult to return to raising rates againThis notion was described as "incorrect."

He emphasized that the Fed has "no confidence" in whether current monetary policy is sufficient to reduce inflationShould economic data continue to signal the need for further rate hikes, the Fed would take that into consideration, although rate cuts are not currently on the agenda.

Journalist Nick Timiraos, known as the "new Fed communicator," commented that Powell hardly addressed the prospect of an additional rate hike based on predictions made in September regarding interest rates

Instead, he indicated that the Fed would present new projections in December, which some interpreted as a dovish angle on Powell’s press briefing.

According to the CME's FedWatch tool, there is a 77.5% probability that rates will remain unchanged at the 5.25%-5.50% range in December, while there's a 22.5% chance of a rate hike of 25 basis points to 5.50%-5.75%. For January of next year, the odds of maintaining current rates are at 70.3%, while the probability of a 25 basis point rate raise is at 27.6%, and the odds for a 50 basis point hike are just 2.1%.

In addition, Powell addressed the looming threat of a government shutdown, recognizing it as a potential economic risk.

Concerning the ongoing conflict between Israel and Palestine, Powell acknowledged that global political issues have gained significance, and the Fed's responsibility is to monitor their economic impacts